Abstract
Revenue is considered extensively by investors when making financial decisions relating to investments in companies. The inherent significance of revenue resulted in many debates on revenue recognition. This has been considered by the guidance of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). Prior to the developments of the International Financial Reporting Standards 15 (IFRS 15), International Accounting Standard 11 (IAS 11) Construction Contracts, and IAS 18 (IAS 18) Revenue was applicable to the construction and telecommunications industry, respectively. The development of the new standard has resulted in consistency within industries and companies improving overall comparability amongst financial information. The five-step model has been implemented to assist management in making judgements relating to the performance obligations satisfied both over time and at a point in time, the transaction price determined to record revenue, and the costs incurred to obtain and fulfil a contract.
The objective of this study is to assess whether the significant judgements made, and uncertainties addressed by management in the determination of the revenue recognition, provide sufficient disclosure to meet the objective of IFRS 15 within the telecommunications and construction industries. The study focused on the significant judgements made by management in the determination of the revenue recognised in the year. The study further included an evaluation of the disclosure provided by the management of companies listed on the Johannesburg Stock Exchange (JSE).
A qualitative approach has been followed as the accounting field is a social science. Therefore, an interpretative research method has been applied and provided valuable insights into subject matter that is related to the view and experience of people. An index study was also performed to confirm the existence of the disclosures within the companies’ financial information. Further, a thematic analysis was performed on the quality of the disclosures made by management, to assess the decision usefulness of the financial information to the users of the financial statements.
Companies listed on the JSE are required, as part of the listing requirements, to apply the IFRS in their financial statement disclosures. The population that formed part of the study included companies listed on the JSE within the telecommunications industry and the construction industry. A systematic approach has been followed in the determination of the companies listed on the JSE within the construction industry. The financial statements selected were those included in the year in which the initial adoption of the standard (IFRS 15) took place and two years post-
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implementation. Companies with financial periods beginning on or after 1 January 2018 would be required to implement IFRS 15.
The results of the index study identified that the level of compliance relating to the significant judgements and uncertainties surrounding revenue, within the telecommunications and construction industries are relatively consistent. The construction industry’s percentage of compliance is slightly lower than that of the telecommunications industry throughout these periods. The investigation also identified that in both industries the overall disclosures made are sporadic and inconsistent in how they have been applied by management. However, there has been a notable improvement in the disclosures, as management have included more of the relevant disclosures year on year. The study identified that the difference was mainly recognised within the quality levels at which the disclosures were rated amongst the industries.
It was further noted that upon investigation of the thematic content analysis, the disclosures provided by management, within the construction industry, achieved, on average, several below standard ratings. This has resulted in a higher deviation in the ratings (between below standard and excellent), as there was a greater percentage of the population receiving a rating of excellent. When considering the population that achieved a rating of standard for their disclosures, the telecommunications industry provided more standard ratings than the construction industry.
Based on the findings there are disclosures that management has not included in the financial statements or that have been assessed as insufficient to meet the requirements of the standard. This could impact the understanding and comparability of the financial information for the users. The study found that the disclosures in both industries required additional consideration as to ensure that all of the requirements of IFRS 15, relating to significant judgements and uncertainties, provide useful information to the users of the financial statements.
Key words : Construction; Disclosure; IFRS 15; Performance obligation; Revenue; Significant Judgements; Telecommunications; Uncertainty.